Determining the Appropriate Margins of CNG Fuel Stations in Iran in the Context of the Strategy for Removal of Fuel Subsidies

The increased share of CNG in the country’s energy use, in response to the policy of removal of fuel subsidies, is contingent upon construction of an adequate number of CNG fuel stations to service the increased number of dual-fuel vehicles in use. The required heavy investment would have to come largely from the private sector, whose actions are dependent on profitability of the operation of such CNG fuel stations. The profitability of CNG fuel stations in turn depends on the margin allowed for the operators. Currently, the private sector does not have adequate incentives for constructing CNG fuel stations due to high land prices and low margins allowed on CNG sales do not provide the needed incentives. In order to provide adequate incentives for investment by the private sector, the mark-up allowed per unit of CNG has to be increased to a level that would render construction of CNG fuel stations economically feasible. The present study aims to study the economic feasibility of construction of single & multipurpose CNG fuel stations of different capacities under various scenarios, taking into account impact of fuel subsidy removal measures on the cost of construction and operation of such fuel stations. The results indicate that most CNG fuel stations (especially stations with low capacities) are non-economic. To resolve this problem mark-up amounts should be raised under a differential system that would allow for different mark-ups in different zones of the country.